x Abu Dhabi, UAETuesday 23 January 2018

Etisalat Zain deal still in the balance

'Timeline' on Etisalat's proposed $12 billion acquisition of Zain will be set out at the end of this month.

Etisalat is in talks to buy Zain.
Etisalat is in talks to buy Zain.

Etisalat will not make a final decision on its proposed US$12 billion (Dh44.07bn) acquisition of Zain until it has completed due diligence at the end of this month.

"Everything depends on the due diligence," Salem al Sharhan, Etisalat's group chief financial officer, said yesterday. "From there, the timeline will be decided. We expect to finish the due diligence by the end of February."

Etisalat offered to buy a 46 per cent stake in the Kuwaiti company for 1.7 dinars a share last September, with the sale of Zain's Saudi Arabian unit among the terms.

Zain rejected three bids on Sunday and no further offers are on the table. But the absence of a sale for the Saudi Arabian unit does not mark a "deal-breaker" in Etisalat's bid for a controlling stake in its parent company, said Mr al Sharhan.

Etisalat already operates in Saudi Arabia under the Mobily brand and acquiring Zain Saudi Arabia would not be allowed by the country's telecommunications regulators.

"I may not call it a deal-breaker. I will call it one of the conditions [to complete the deal]," said Mr al Sharhan. "If [Zain] does not sell [Zain Saudi Arabia], we don't complete the transaction."

Sheikh Khalifa Ali Al Sabah, a member of Zain's board of directors, a shareholder in the company and a member of Kuwait's ruling family, said this week the absence of a buyer for the Saudi Arabian unit meant the Etisalat deal could not proceed. While the deadline to complete due diligence is at the end of this month, that is not when the deal is expected to close, said Mr al Sharhan.

He said Etisalat's stock, which is traded on the Abu Dhabi Securities Exchange, is "underpriced". Ownership of shares in Etisalat is currently restricted to UAE nationals, but talks are under way to allow foreign ownership, he said.

"We are in discussions with [the government to change the law] from a special law to a commercial law," he said. Such a move will help the company raise money from foreign investors which it could use to finance the Zain deal.

Irfan Ellam, a telecoms analyst with Al Mal Capital, said that if Etisalat moved its corporate structure to the UAE's commercial law, investors were likely to be watching how much of the operator it would make available to foreign interests.

Etisalat has already initiated talks with 18 international banks over financing the acquisition.

"Our intention is to finance Zain, if it happens, through debt finance," said Mr al Sharhan. "The total amount is around $12bn."

That amount would be made up of a $6bn 18-month bridge loan, which Etisalat said would be repaid with a bond or sukuk issue. The remainder would be made up of a $3bn three-year loan and a $3bn five-year refinanceable loan.

Mr Ellam said Etisalat would have no problem repaying the debt it would assume. "The only question is how they want to use their cash because they still have cash on their balance sheet," he said.